FDI in E-commerce: Whom will it benefit?

FACTS:

The government has allowed 100% foreign direct investment (FDI) in online retail of goods and services under the “marketplace model” through the automatic route, seeking to legitimize existing businesses of e-commerce companies operating in India.

It also notified new rules which could potentially end the discount wars, much to the disappointment of consumers.

This is because the rules now prohibit marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%.

DIPP has also come out with the definition of ‘e-commerce’, ‘inventory-based model’ and ‘marketplace model’.

The inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly, according to the guidelines.

Marketplace model is an information technology platform run by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

However, DIPP has prohibited FDI in e-commerce companies that own inventories of goods and services and sell directly to consumers using online platforms.

A marketplace entity will be permitted to enter into transactions with sellers registered on its platform on business-to-business basis, DIPP said.

The marketplace e-commerce companies will be allowed to provide support services to sellers on their platform such as warehousing, logistics, order fulfilment, call centre and payment collection.

The new policy also mandates such e-commerce companies to display contact details of the sellers online. The warranty/guarantee of products or services sold online will also be borne by the sellers, not the e-commerce company.

Is it something new?

Several E-commerce firms today, and this sector was growing in an unfettered manner

There was no regulation earlier.

FDI was not allowed under e-commerce.

The retailers were defending their business saying they do B2B,when, in reality , they were catering to B2C services

Therefore, there was a grey area in public policy

In this context, it is to an extent a new development

This notification has made FDI in E-commerce DeJure. It has legitimized what was already happening on the ground

There are some safeguards to avoid their unfettered growth and regulate them

The traditional retailers can have little less disadvantage now as there are some caps

They can trade only with certain conditions

Criticism:

FDI in E-commerce was not allowed. So how can it be legitimized just because it was happening?

The implementation of these riders is skeptic, for, they were functional when they were not supposed to function. So, the argument that the riders will be implemented is fraught with inconsistencies

This helps the foreign capital rather than the domestic retailers and small traders

This is allowing FDI in multi-brand retail through the back door

The competition commission of India does not have the legal weapon to regulate them

FDI in multi brand retail was not allowed because it would adversely eefect the shop keepers, at least in the vicinity of the large stores.

The FDI in E-commerce will hurt more, due, absence of taxes like entry tax etc for e-commerce firms

There is no agency to monitor these guidelines stipulated by the DIPP

Nowhere in the DIPP policy, the word, “deep discounts” is mentioned. Hence, there is lack of clarity on pricing regulation.

However, the optimists opine:

They are not purchasing and selling

They only provide a platform

They are not allowed to sell themselves

Consumers are getting goods at cheap prices

The manufacturers are free to sell their products manufactured in India through e-commerce retail.

However, this provision would be applicable only on products manufactured in India

Conclusion: There are several concerns with respect to the regulations which are imposed. The monitoring of these companies is also on a shaky ground. There is no consensus on certain grey areas like predatory pricing and market capture. Therefore, there has to be more deliberations with major stakeholders to address their concerns and build consensus on these sticky issues to come out with clear policy guidelines.

PRACTICE QUESTIONS:

The retail supply chain in India needs qualitative and quantitative revamp. In the light of this statement, critically examine the policy to allow 100pc FDI in e-commerce.